Mineral and Petroleum Resources Development Amendment Bill [B15-2013]: public hearings day 3

Meeting report

Eskom
Mr Kannan Lakmeeharan, Acting Group Executive: Technology and Commercial Primary Energy, Eskom, said that some of Eskom’s challenges to coal security were:

• Ageing tied collieries and under-performance of cost plus mines had resulted in increased purchases of top-up coal from medium-term supplies;

•  Increased demand for coal generated electricity from existing power stations due to delays in alternative generation solutions resulting in a need for new coal sources beyond existing footprint;

• Increasing load factors on coal-fired power stations resulting in a need for increased quality and consistency of coal.
 
The reasons for concern about coal shortages were: shortages were expected to be 40 Mega tons per annum post 2018; Transnet Freight Rail would increase export capacity; South African steam coal exports favoured the Asian market, with major demand originating from India for Eskom grade coal; the market had been consolidated into four major suppliers; and large capital investments were required to meet coal demands in the future. The Waterberg and Mpumalanga regions were not being effectively managed to ensure domestic security of coal.

Eskom comments:
Coal should be declared a strategic resource to support domestic energy security, and ensure that SA can maximise its export potential once domestic energy security is assured.

Ensure the nation’s mineral and petroleum resources are developed in an orderly and economically sustainable manner.

Incorporate a structure to assist the Minister in evaluations in order to allow the trading of shares in listed companies which hold prospecting and mining rights.

Ensure that Eskom has first right of refusal on large coal resources which were previously earmarked for domestic use.

Ensure that the DMR enforces domestic coal supply obligations contained in the Mining Works Programmes of existing mining rights holders.

Mechanisms need to be found to limit speculation on the costs of land for resources that are of strategic importance to domestic supply.

Pricing
Eskom believes that the price of domestic coal should be based on efficient production costs plus a risk-adjusted return, instead of being “indexed” in any way to global or thermal coal prices, export parity prices, a “market price” or a global coal price.
Electricity prices within the country were regulated; international coal market prices were higher.

Timelines
Clear timelines have been removed in favour of “prescribed periods”, which allowed for inconsistencies between different right holders and applicants. Timing of compliance periods and expected time lines for approval should be clearly articulated. There was a need for specific and reasonable timelines to avoid parties withholding mineral resources unreasonably.   The DMR should also specify expected timelines, criteria and the process that the Minister will adopt to declare certain minerals as strategic.

Previous Rights Holders
Since previous rights holders were ‘enabled’ to avoid their long-term environmental obligations,
concern was that there could be ambiguity as to who was accountable for potential environmental liabilities, and how much liability would be inherited. The Bill should thus be explicit as to who was responsible for potential liabilities.  Also, there should be no retention after the closure certificate was issued, and the rehabilitation fund should be aligned with the Income Tax Act, as far as any trust fund for rehabilitation was concerned.

Processing
An awards system that took into account the order of processing should be adopted. It was unclear whether or not the Bill intended to remove the first in, first out (FIFO) principle for the mineral licensing regime, which had followed the FIFO principle for many years. The Bill did not indicate what happened when a prior application was pending. The Bill also needed to be clear how the Minister would determine/decide on who would get the rights from the numerous applications. The Bill should include evaluation criteria that would be used when two or more competing applications were received. Applications received on the same day should be dealt with in order of receipt by the DMR website, or in order of receipt by the relevant DMR office, in the event of the website being unable to receive the application.

Lastly, Mr Lakmeeharan said that a structure needed to be established to assist the Minister in evaluations, and the previous provisions of Section 9, regarding the order of processing, should be reinstated.

Discussion
Mr J Lorimer (DA) asked for clarity on how limiting exports would maximise South Africa’s export potential.
Mr Kannan replied that typically, Eskom off-take from a mine was important for the start-up of a coal mine and to maximise the potential of that mine, including quality exports.
Mr H Schmidt (DA) said that he was concerned that substantive parts of the Bill needed addressing, and those parts in the regulations would impact Eskom.
Mr Schmidt asked what differentiated Sasol from Eskom, as Sasol’s concerns were very different. He asked if it was because Sasol had a coal mining division and therefore had control over their coal supply, or because Sasol was a private sector company and could regulate its business efficiently.
Mr Lakmeeharan replied that Sasol mined its own coal. Eskom had had the ability to control supply in the past, when it had its own mining rights. Eskom’s coal supply relied heavily on strong collaboration with the core mining industry and the state to ensure that there was enough coal for domestic production. Eskom was efficient and had kept prices down, but struggled with medium and long-term contracts because those were linked to markets. It was important for South Africa to have a very stable electricity supply. This was Eskom’s focus.
Ms K Khunou (ANC) asked why the existing structures written into the Bill would not assist the Minister adequately.
Mr Lakmeeharan replied that he would need to verify whether the Evaluation Committee was in the Bill.
Mr J Moepeng (ANC) commented that Eskom’s concerns would be the same as those of the state. He assumed Eskom agreed with the spirit of the review of the legislation, but that there were certain areas which needed to be tightened.
Mr Lakmeeharan replied that generally Eskom agreed with the spirit of the review. The question was how to close the loops of ambiguity.
Mr Lorimer said that it appeared that Eskom needed coal and therefore would force companies to sell it to Eskom instead of exporting it.  Most of the profit was in exporting. He asked if Eskom would affect the coal mining companies’ exports and profit potential, and sought clarity on whether this would result in a reduced supply of coal.
Mr Schmidt said that his biggest problem with the presentation was a sentence which stated: ‘South Africa’s coal sector required substantial investment and recapitalisation to meet both domestic and export requirements, as the current mining capacity would not meet the growing demand’. It appeared that there was a shortage of investment in the South African coal mining environment, and that this investment requirement would be met by a controlled price of coal and controlled exports by companies to get coal to Eskom at a particular price – even before declaring coal as a designated mineral. This path of assuring investors appeared to be backwards. He asked for clarification.
Ms Kiren Maharaj, Divisional Executive: Primary Energy, Eskom added that it was true that to keep the price of electricity low, it could not be actively competitive with the export industry from a core item point of view. However, the pricing principles used offered a fair return and it was competitive in the market - profitable at a suitable level - but maybe not as much as one would expect to earn in the export industry and compared to diversified mining companies. It could not compete with the export market, but could offer competitive economic prices which could cover costs and provide a fair return. The current mining industry rode on the back of these kinds of arrangements. Eskom had the stability, offset and cash flow and other spinoffs associated with a large government entity.

Ms Maharaj added that coal supply security was about keeping the lights on. While South Africa did export some coal, the question was what quantity of exports we were sacrificing at the expense of domestic security. If we exported all our good quality coal, the product left for Eskom was very unsuitable. Even if Eskom did not run its plant as hard as it was currently running, it still required quality coal. While exports were not maximized, it was important to balance coal for domestic electricity requirements and coal for the export industry.
Currently, the revenue attained out of the export industry was significant. However, when coal prices drop significantly, as had happened in the past, Eskom offered a fair return to the mining industry. Its core existence had been beneficial to the country.

Mr Schmidt asked if this was just another example of a public entity compared to a private company, such as Sasol.

Ms Khunou asked what Eskom strategy was in place to ensure the local supply of coal for the demand.

Mr Lakmeeharan replied that Eskom had a strategy for emerging miners which had been presented publicly in the past, which involved striking a balance with investment and export viability. Discussions with the big four mining houses on how to support this strategy were ongoing.

Mr Kannan replied that a private sector company would not necessarily ensure security of supply, the viability of the mining industry and the needs of the state, while sacrificing some of its own return. While Eskom could improve on efficiency, if South Africa was like India -- with a privatised and diversified electricity supply -- we would have blackouts, as they do.

Webber Wentzel Presentation
Mr Peter Leon, Partner and Director: Webber Wentzel, said that while Webber Wentzel agreed with the Bill’s objectives - to create a better mineral regulatory system by streamlining the administrative process, introducing a regulatory reform, and removing ambiguities from the MPRDA -- the problem was that the Bill not only failed to meet these objectives, but exacerbated the existing problems within the MPRDA itself. One of the key reasons for saying this was that the Bill was very much about a rule by regulation, rather than a rule by law. In the mining industry, this was a concerning issue, bearing in mind that due to South Africa’s mineral regulatory system, South Africa was currently ranked 64th (Botswana was 17th) out of 96 mining jurisdictions surveyed by the Fraser Institute.

Rule by Regulation and Broad Administrative Discretion
Unguided Ministerial discretion occurred in a number of provisions: in relation to beneficiation under Clause 8; and broad discretion to the Minister on the conditions of transfer, prospecting and mining rights under Clause 21.

The Bill eliminated all time periods previously provided for in the MPRDA, and this was now left to Ministerial discretion. There was a constitutional problem with this. The Constitution of South Africa, in section 1(c), had a foundational provision around the rule of law -- a key provision which the Constitutional Court interpreted as saying that laws had to be reasonably certain and administered in a particular manner.  In other words, without certainty and predictability in legislation, you entered the terrain of unconstitutionality. (Examples of outcomes of Constitutional Court cases can be found in the submission).

As recognized by the Deputy President, the Honourable Kgalema Motlanthe, in July 2013, in the Framework Agreement for Sustainable Mining Industry, which was signed by government, organized labour and business, the rule of law of stability was the fundamental pillar of our democracy and a necessity to ensure economic and social development.

Webber Wentzel understood that comprehensive regulations would be published in terms of the Bill, which would limit the Minister’s discretion. However, regulations were not law and could be changed overnight; they did not involve a public participation process; and the Constitutional Court had (again) warned (in a Western Cape case in 1995) that extensive delegation of power to the administration - the executive - could be unconstitutional, as it could potentially violate the separation of powers.

Mineral Beneficiation and Restrictions on Exports – Clause 21 of the Bill
The Bill obliged the Minister to initiate the beneficiation of minerals, mineral products and petroleum in South Africa. Under this clause, the Minister had broad discretionary powers to set the levels required for beneficiation, the percentage per commodity for beneficiation, the developmental pricing conditions for beneficiation and the percentage of raw mineral or mineral products to be offered to local beneficiators.

The immediate problem was that there were absolutely no criteria prescribed in the Bill as to how these extensive discretionary powers would be exercised. The first issue would be potential violation of Section 1(c) of the Constitution – the rule of law provision. It was also not clear if this would be applied prospectively or retrospectively. Retrospectively, this would have a severe impact on mining companies’ contracts and additional international consequences.

Under Clause 21(d) of the Bill, any person who wanted to export designated minerals had to obtain the Minister’s written consent. The Bill defined “designated minerals” as: “such minerals as the Minister may designate for beneficiation purposes as and when the need arises in the Gazette”. Webber Wentzel felt that ‘this did not tell us anything at all’.

The word “economically” had been deleted, which suggested that the Minister was no longer required to make a determination on whether beneficiation was economically feasible, which was an issue in itself.

Besides the rule of law issue, there were other legal problems to be considered. Effectively, the Bill introduced an exporting licensing system which was unlawful in terms of international law.
Since South Africa had signed the Marrakesh Agreement in 1995 and the EU Trade Development Cooperation Agreement, 1999 (TDCA), it could not impose quantitative restrictions on imports and exports. They were prohibited. The proposed amendment potentially contravened article XI, read with article XX, of the General Agreement on Tariffs and Trade, 1994 (GATT); and article 19, read with article 27, of the European Union - South Africa TDCA. There would be serious international consequences for South Africa if the Bill was enacted.

A number of mining companies incorporated in the EU and elsewhere were protected by Bilateral Investment Treaties (BITs) with South Africa. Currently, South Africa had 23 BITs in force. In particular, this amendment may contravene the BIT between South Africa and the United Kingdom, which required, among other things, that South Africa and the United Kingdom afforded investors and their investments "fair and equitable treatment". This principle imposes obligations on South African public authorities to act transparently, reasonably and without ambiguity, which meant that South Africa was obliged by international law to maintain a predictable regulatory environment. If the rules of the game started changing after 20 years - suddenly and unpredictably - the mining company in question would potentially have a BIT claim against South Africa.

Section 231(2) of the Constitution stated that an international agreement “binds the Republic” after it had been approved by resolution in Parliament. Both the WTO and EU Free Trade Agreements were subjected to resolution by Parliament. In the Glenister case (corruption), the Constitutional Court had said that the main clause of the Section 231(2) was in the international sphere. International agreements approved by Parliament became binding on the Republic, but that did not mean that it had no domestic constitutional effect. The Constitution itself provided an agreement approved by the Republic, with rule of law implications. The legislature – the Portfolio Committee - had to take into consideration these international laws when it enacted the Bill into legislation.

An issue of unconstitutionality arose in Clause 21, where amendments to the Bill empower the Minister to set the levels and developmental pricing conditions for beneficiation of minerals. This could potentially be an arbitrary deprivation of property. The Portfolio Committee should be aware that Section 25(1) of the Constitution says that "no one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property". The Constitutional Court had held that “any interference with the use of and enjoyment, or exploitation of private property involved some deprivation in respect of the person having title or right to or in the property concerned".  Therefore, a deprivation of property was unconstitutional where it was arbitrarily or procedurally unfair. This could happen when there were no clear rules or criteria given for deprivation. It was Webber Wentzel’s contention that these provisions were arbitrary and therefore in contravention of 25(1) of the Constitution. There were no constraints on the Minister’s discretion and no clear rules of procedure, and were therefore real issues of constitutionality.

Order of Processing Applications – Clause 5 of the Bill
For some reason, sections of the MPRDA appeared to have been deleted. It was not clear if the First in, First Assessed (FIFA) principle had been jettisoned. What was in place of this 100-year-old principle was that the Minister had the right to: periodically invite applications by way of notice; prescribe the period within which any application may be lodged; and set the terms and conditions subject to which such rights may be granted. Either one had FIFA, as in most mining jurisdictions, or one had a system where rights were auctioned by the state. There appeared to be a mixture of both systems. The Portfolio Committee should re-look at this.

Concentration of Rights – Clause 12 of the Bill
Section 17, as amended by Clause 12, now granted the Minister the ability to refuse or grant any additional prospecting or mining rights to an applicant where this would lead to the "concentration of rights in question under the control of the applicant and its associated companies". The Bill used the term “concentration of rights”, rather than “concentration of mineral resources”, which is used in the MPRDA. The amendments in relation to "concentration of rights" will create an overlap between the regulatory oversight under MPRDA and that under the Competition Act, 1998 (the"Competition Act"). Webber Wentzel was of the opinion that the Competition Commission was better placed to regulate competition issues.

Regarding penalties, it was unclear whether there was a rational basis for imposing turnover-based penalties in the mining industry, particularly in view of mining companies' low profit margins.  (Details of the penalties, Clause 70, can be found in the attachment.)

Regarding regulation of historic tailings, Clause 29 of the Bill, owners of historic tailings would need to apply for a reclamation permit in order to process these residue stockpiles and residue deposits. The amendment may constitute an unconstitutional expropriation of historic tailings, as it would be difficult for the state to link such expropriation to a public purpose.  Regulation of historic tailings may amount to an unconstitutional expropriation under South Africa's BITs.  For example, Section 42A would contravene Article 5 of the SA-UK BIT, in that the expropriation is not linked to a "public purpose" and fails to provide for "prompt, adequate and effective compensation".

Webber Wentzel believed that the Bill would inevitably reduce mineral exports, discourage investment and thus affect the balance of payments on the current account, which was already at an unsustainable 6.5% deficit.  Webber Wentzel suggested that the Portfolio Committee should conduct a full Regulatory Impact Assessment to assess the likely consequences of the Bill on the South African mining sector. It was crucial that the Bill was amended to remedy these shortcomings.

Discussion
Ms Khunou said that the suggestions re-wrote the Bill. There were many contradictions. The amendments were for ensuring change, investment and the upliftment of the poor. The regulations would be published in the Gazette and the public would have the opportunity to re-look at the regulations through Parliament.

Mr Leon agreed that everyone should share in the country’s wealth and South Africa needed to establish an enabling environment for investment in mining, be it domestic or foreign. That investment drove growth and that growth drove re-distribution. This was the key objective of any legislation, whether seeking redress of otherwise.  Any regulation involved discretion, but it had to be guided, limited and based on objective criteria. These issues should be cognisant in the Bill, or there would be legal issues. It was always better to put something in legislation. Regulations were subordinate. One needed to be careful about delegating legislative powers to the executive.

Mr Schmidt said that it appeared that GATT and the EU TDCA dealt with the regulation of exports. He asked if the comments in the presentation were applicable to any other ministerial discretions contained in the Bill, such as having to declare a designated mineral.

Mr Leon replied that, in short, as soon as provisions in the Bill (as highlighted in the presentation) created export restrictions, both the WTO and the EU would be engaged. The GATT Agreement said to member states that they could have tariffs and duties, but after 1995 they could not have quantitative restrictions on imports and exports. 

Mr Schmidt asked for comment on a particular case relating to upstream petroleum, and the impact of retrospective provisions on exploration and production rights.

Mr Jonathan Veeran, Attorney: Africa Mining and Energy Projects Practice, Webber Wentzel, replied that with regard to the oil and gas issue, there was no “grand-fathering” provision. If one had an exploration right and sought to exchange that for a production right (based on that exploration right), one entered the market with a specific set of legitimate expectations, with the Free Carried Interest, and other oil and gas provisions. Now one had a whole different set of expectations, and the playing field was changed. This became an issue from an international perspective, particularly with BIT agreements, because they protected against unfair and inequitable treatment and this spoke directly to those provisions.

Mr Lorimer said that the presentation had talked about how the Bill would violate international laws and treaties, the Framework Agreement for Sustainable Mining Industry, and many others. If the Bill was passed in its current form, it would open the door to a number of legal challenges. He asked how enforceable the law would be.

Mr Leon replied that issues between government labour and business would be dealt with by the Mining Industry Growth Development and Employment Task Team (MIGDETT) under the Sustainable Framework Agreement. On the international law side, the BIT were the risk. They gave the right to sue the sovereign country directly. If there was a breach to a BIT, mining companies and investors would have redress under international arbitration. Hopefully, WTO and EU issues would be solved through discussions between SA and the member concerned.

The Portfolio Committee would need to look carefully at the provisions to ensure that they met the rule of law test, and were clear. If they were not clear, they would have to seek redress in court.
 
Mr Lorimer asked how the threat of stiff penalties for breaking a law which was not clear, would affect investment.

Mr Leon replied that certainly investors would not be encouraged by the prospect of a 10% fine on their export turnover.

Mr Moepeng said that each economic activity in SA was for the enhancement of the country’s development agenda. The Bill sought to regulate the actors within this activity. SA was a developing country and could not be equated with developed countries. He asked why 20 years into democracy, SA would be equated with developed countries such as Australia. What would the auctioning of rights say about the government’s development agenda?

Mr Leon said that he understood that the MPRDA sought to regulate the industry, but the MPRDA should be encouraging investment, because this investment would in turn create jobs. Regarding the FIFA principle, he had not said whether rights should be auctioned or not.  The Bill was not clear. The FIFA principle seemed to have been jettisoned, but there was no real auction system in its place. In the oil and gas industry, exploration blocks were auctioned, which created some windfall for the state. Some mining countries, such as Mongolia, Kazakhstan and Liberia, which were not developed countries, had introduced an auction system for their mineral rights. It was working well for them. There was some merit in the auction system. Mr Leon suggested that the Portfolio Committee should communicate with Liberia about their system.
 
Mr S Mohai (ANC) said that though the presentation was informative, it lacked addressing issues of legacy and resolving fundamental issues. Mention of Marikana was not helpful. The NGP sought to address issues in the long term.

Mr Leon replied that South Africa was in transition and the Constitution created rights and obligations. The comment about Marikana related to the impact of legislation on economic growth, and was about investment in mining.  It was a high risk, high cost, capital intensive business and capital was uncaring about where it made its investment. It went where it could get the best return. Obviously, one wanted to encourage investment in mining in South Africa, not deter it.

Free Market Foundation
Mr Temba Nolutshungu, Director: Free Market Foundation (FMF) said the foremost question that FMF asked in addressing any policy question, including the contents of the above mentioned Bill, was: Would this policy be to the long-term benefit of the people of South Africa, especially those who are the poorest and most vulnerable?

Mr Leon Louw, Executive Director & Co-Founder: Free Market Foundation, said that laws of economics were typically agnostic in nature. Like laws of gravity, they applied, regardless of political affiliation. Laws of economics could tell how to create and destroy jobs, but could not tell you whether to create or destroy jobs.

The FMF assumed that everyone had the same basic objective: to do what is best for our country and our people. Before even starting to talk about beneficiation, policy had to make the mining of minerals less costly, less uncertain and more attractive to investors. Thereafter, the question would be whether to beneficiate or export, how to distribute revenues from it, taxation, and so on.

Every person and government said that they were for “the rule of law.”  It had the highest possible legal status - in the first section of the Constitution. But the rule of law was a cliché. Few professors of law could say whether the Cape Town City Council street trading by-laws complied with the rule of law.

A clean administration called for the rule of law - more objective criteria, and less discretion. People’s rights and obligations flowed from objective principles in law, not from discretionary whimsical choices. The practical consequence of not having the rule of law was real or suspected abuse, or corruption. The only branch of government where discretion was considered appropriate, was the judiciary. If the Bill had discretion, it should have clear objectives as to why discretion was granted. For example: the Minster must exercise ‘x’ in order to achieve ‘y’.

The Portfolio Committee was dealing with the country’s resource for energy – the most important legislation in the country. They were in charge, in a fundamental and serious way. Unless there was enough electricity and unless energy was secure, the NGP and NDP were meaningless and there would be no jobs and no prosperity. The Committee Members were the law makers. If Members wanted to delegate power to the executive, they had to be clear about the purpose for giving the power to the executive, and clear on the checklist of the considerations that the Minister had to apply when exercising that power.

Separation of Powers
While laws were made in Parliament, every legislature in the world had an executive under it which essentially tried to gain more power. The law makers had the profound responsibility to constantly put on the brakes.  Redraft the Bill - if the executive wanted power, it had to tell the legislature how it would exercise that power.

Due process
As spelt out in Section 195, due process was about a meaningful proper procedure for public participation. The word ‘consult’ was not clarified.

Beneficiation
All commodities had a universal world price, to be sold where they were beneficiated best. For the country to prosper, it needed an economy that was efficient and produced competitive commodities, regardless of where the resource came from. The country would lose out if it sold minerals at a discount to capitalists/industrialists who had vested interests in mind, such as government subsidies and cheap minerals. A farmer did not beneficiate his own produce. He sold it to whoever beneficiated it best.

Regulatory impact assessments
These should never be done by the department that proposed the measure. Parliament could commission such an assessment, but it was best to have a properly conducted cost-benefit analysis conducted by a neutral, autonomous agency that took responsibility for giving the legislators the regulatory impact assessment, before Parliament considered such a measure. For over a decade, it had been the policy of government to introduce a regulatory impact assessment unit. Special departments had been created in the Presidency to do so – including the Departments of Finance and Trade & Industry.  The FMF endorsed such a unit, but the policy had not been implemented.

Liberalisation of economy
The Bill reflected a deep mistrust of the role of markets and entrepreneurship. It was a fact that countries with freer economies outperformed those with less free economies.  African countries, like Botswana, Mozambique and Ghana, and the BRICS countries - those that had moved toward market economies and to more certainty, less discretion in mining mineral rights, and trust of markets and prices -- were achieving the world’s highest economic growth rates. Since the so-called global economic crisis, Sub-Saharan Africa was now the highest growth region in the world.  Africa’s economic growth rate boomed, while South Africa’s stagnated. The difference was that they were liberalising their economies, while South Africa was intensifying its regulatory barriers, as in the Bill. The Bill was taking South Africa in the opposite direction to those of its region and its BRICS partners.

Lastly, Mr Louw said that developing countries were increasingly auctioning their mineral rights to maximise revenue. In most countries, mining companies did not get involved in housing and transport and other benefits to local communities. They paid wages and salaries to labour; and taxes and royalties to government. South Africa had a legacy of apartheid - the patronising idea that migratory labour went to the mine and was looked after by the mining company. If South Africa wanted to be an emancipated country, it needed to get to the point where labour was not migratory - they needed to own their own house and land. In the earlier discussion on auctioning of mineral rights, it was unclear whether the money from mineral rights, in the hands of the government, would be developmental or not.

Discussion
Mr Moepeng said that the auctioning of rights would benefit only those that had money and would block first time entrants into the industry.

Mr Nolutshungu said that in 2011/12, South Africa lost 24% of its foreign investment, primarily to neighbouring countries in sub-Saharan countries. Therefore, South Africa needed to examine its existing policies and those proposed in the Bill. The legislative and regulatory barriers to entry had to be removed to encourage proliferation of new entrants, and policy had to translate into an incentivised, not punitive environment, attractive to both domestic and foreign investment.

Mr Moepeng commented that he was interested in understanding more about beneficiation – if it was not for job creation and the benefit of people in the industry. 

Mr Mohai said that he had read the Reserve Bank input calling for government, labour and business to negotiate a consensus on which areas constituted a sacrifice to economic growth and development.

Mr Louw replied that the point made by the Reserve Bank was that compulsory beneficiation would force the mines to subsidize industries which were inherently uncompetitive and inefficient, and could not compete with world market prices. Beneficiation should include maximising mineral production output and the revenue with which to mine, to pay and reward and give dignity to the workers. South Africa had falling mineral production. 

Mr Mohai asked what the major contrasts were between South Africa’s mineral legislation and that of Ghana and Mozambique.

Mr Louw replied that these governments were doing everything to encourage certainty and high capital long-term investment, without disruption to the investor.

Mr Mohai asked how investment had caused South Africa’s economy to stagnate.

Mr Louw replied that in 1994, SA international economic growth rates rose after 30 years of stagnation. In 2006/7, South Africa’s growth rate had started to fall.

Ms N Ngele (ANC) said that she agreed with the comments on migratory labour and the apartheid legacy. She asked for clarity on an arrangement on how thousands of mine labourers could purchase houses close to mines.

Mr Louw replied that the FMF had proposed consulting the community and giving them full free hold title over land they occupied, to live as emancipated, well-paid people, looking after themselves and owning their home and land, not as migratory labourers living on someone else’s land. Had that proposal been adopted, there would have been no Marikana.

The Chairperson said that inequalities were at the heart of qualms and seemed to be causing the roundabout way to the finding of solutions. However, the law had to apply. 

Mr Louw concluded that one of the ways to maximise dignity, as discussed earlier, was to ensure that the economy was growing and vibrant.  FMF’s concern was that the Bill would have the opposite effect.

Canadian Natural Resources International (South Africa) Ltd
Mr Steve O’Reardon, General Manager: Canadian Natural Resources, South Africa (CNR), briefed the Portfolio Committee on the company’s international oil and gas operations in Aberdeen, Scotland and in Africa: Angola, Gabon and Cote De I’voire.  His presentation included the risks, environmental impact, impact of stability, as well as its community involvement associated with CNR’s oil and gas operations.

In South Africa, CNR was the holder of an offshore licence for block 11B/12B. Its drilling target was about 180-200 km directly south of Mossel Bay on virgin territory with high prospectivity. CNR had obligations to South Africa under certain terms of the contract signed with South Africa, that it would drill the first exploration well during the first period, scheduled to begin the following year. However, uncertainty about the regulatory regime would affect how CNR would go forward. Its economic case and legitimate expectations had been built around the terms of the contract, and CNR’s investment in South Africa was based on that.

As per CNR’s written submission, and the Offshore Petroleum Association of South Africa (OPASA) submission - to which CNR was signatory -- uncertainty added up to the potential for the industry to stop in its tracks before it got off the ground. There was uncertainty about state participation and free carried interest; officiation; export control; and which charter was applicable. CNR would like to sit together with the government to work the issues out. CNR wanted to work in concert with the country and contribute to its success.

Discussion
The Chairperson asked if CNR had started drilling.

Mr O’Reardon replied that CNR had signed the exploration right in May (last May) and had three years in which to start drilling the well.

The Chairperson asked who CNR’s South African partners were, apart from OPASA.

Mr O’Reardon replied that CNR was the 100% holder of the block, but had identified technical expertise to share the risk and develop the well. This partner could not yet be disclosed, as the matter was before government for approval.

Mr Lorimer asked if CNR had consulted with the DMR regarding the potential amendments to the regulatory regime and the terms under which CNR had signed the contract.

Mr O’Reardon replied that CNR had consulted with the DMR indirectly on the matter, and had written a letter to Minister Shabangu.

Ms Khunou said that the industry needed regulating. She asked what CNR expected and what it would want to amend.

Mr O’Reardon replied that CNR would like the signed contract between CNR and South Africa to be honoured. Changes affecting the contract may, or may not, change CNR’s view on investing in South Africa.

Centre of Applied Legal Studies (CALS)
Mr Louis Snyman, Attorney: Centre for Applied Studies, University of Witwatersrand, said that the Amendment Bill addressed many of the issues raised regarding the existing Act, and these developments were welcomed.

Objects and Definitions
The Bill before Parliament replaced the definition of “historically disadvantaged” for a new clause embracing all citizens and categories of persons and communities disadvantaged by unfair discrimination. However, CALS noted with regret that the Bill deleted the reference to both “women” and “communities”.

Insertion of 2A into Section 23 of the MPRDA empowered the Minister to impose conditions in order to protect the rights and interests of communities. The Bill would remove reference to affected communities’ participation requirements, which was unfortunate given South Africa’s commitment to transparent and accountable governance.

The amendments to Section 23 of the MPRDA now empower the Minister to “after having taken into consideration the socio-economic challenges or needs of a particular area or community, direct the holder of a mining right to address those challenges or needs”. In addition to the new monitoring power, the Minister can now issue directives to compel the meeting of socio-economic needs as well as remedying contraventions of environmental management obligations, although its shortcoming is that no guidance is provided as to the circumstances and manner in which such discretion can and should be exercised

The amendment of Section 102 dealt with the amendment of rights, permits, programmes and plans. People and communities should have a say in decisions affecting their rights and licenses, as the amendments could have just as much effect on the communities. Participation would also assist government regulators to make more informed evaluations of licenses.

CALS welcomed the proposed amendment to the structure of the Regional Mining and Development and Environmental Committee (REMDEC).  Members appointed to REMDEC must possess expertise in “mineral and mining development, mine environmental management and petroleum exploration and production”. CALS proposed that expertise in sustainable development and community engagement be added to this list. The provision for the appointment of consultants in the new Clause 10C would make gathering this kind of expertise on REMDEC possible. The inclusion of reporting requirements in Clause 10G would enhance good governance. These reports should be public documents, in line with the constitutional commitment to transparent and accountable governance.

CALS expressed concern about the absence of a requirement that representatives of non-governmental organisations or community-based organisations be included in the Ministerial Advisory Council. The absence of mandatory experts on this Council limited the ability of the Minister to make informed decisions. It was vital that the perspective of the communities impacted by mining activity be integrated into the highest levels of decision making.

Clarity was required in the provisions that regulated bulk sampling. CALS welcomed the changes in the Bill that tightened the regulation.

The Bill decoupled the return of the financial provision from the issuing of the closure certificate.
The Minister had the discretion to retain any portion of the financial provision needed to address latent and residual safety, health or environmental impacts which may become known during the next 20 years. CALS wished to point out the inadequacy of the 20-year period, as many environmental impacts, or the seriousness thereof, only became apparent far later - as illustrated by the current problem of acid mine drainage. CALS noted that the Bill retained this 20-year cap.

Another issue was that Section 43 of the MPRDA imposed an obligation on the holder of a right or permit, to apply for a closure certificate in the context of mine closure. The Bill inserted sub-Section (13), which provided for the exemption of those holders of rights or permits who had “caused no environmental damage,” but the Bill provided no guidance for determining the threshold. The exemption applied to holders who, prior to abandonment of the right, had “not conducted any invasive operations.”  Further clarity would, however, need to be provided for the definition of invasive activity.

Roles & responsibilities of DMR
The present system gave the DEA the responsibility for environmental authorisations for NEMA-listed activities and the DMR the responsibility of managing the EIA process for mining and prospecting rights under the MPRDA.  The solution proposed in the Bill was that all environmental impacts were now regulated by NEMA, but overseen by the DMR.  CALS believed that the DMR should not be the competent authority for processing environmental authorisations and licenses and for overseeing compliance with the terms and conditions they contained, for three reasons: conflict of mandate, the DMR’s present lack of the specific skills set for environmental management functions; and the skills in the DEA cannot be quickly replicated.
Discussion
Ms Khunou commented that the DMR needed to employ the necessary skills to ensure that the Bill was implementable. Consultants had not been helpful in this regard.

Mr Snyman said that for a particular skill set, the government could bring in consultants to assist.

Mr Schmidt said that the MPRDA made certain provisions for how environmental provisions would be dealt with, in Section 39 to Section 43.  In 2008, the Amendment Act had brought in a three-phased process: the environmental provisions would be dealt under NEMA in the first phase by the DMR and in the last phase by the DEA. His concern was that the President had consented to the MPRDA in early June 2013, and the provisions had been withdrawn by a further proclamation three days later. He asked where that left the environmental provisions, in terms of procedures to follow.

Mr Snyman replied that people were seeking legislative clarity. Even though certain sections were repealed, that particular law stayed in place until another law replaced it. CALS was asking that the environmental decisions be made by the people who had the repository of knowledge to do that. With the new phase, there would be a teething process during which environmental degradation would occur.

Conservation South Africa
Ms Sarah Frazee, Chief Executive Officer: Conservation South Africa said that the presentation was on behalf of six environmental groups: Conservation South Africa, the Centre for Environmental Rights, the Worldwide Fund for Nature South Africa, the Federation for a Sustainable Environment, Groundwork and Mark Botha.  In her work, she had seen the impact of inadequate closure policy and the negative impact of abandoned mines. Mine rehabilitation, closure and the retention of financial provision in Section 43 of the Bill were essential elements of the Bill.

CSA wished to address the financial and closure policies, which were the most important.  CSA recognized the important role of mining in the economy, and with thorough planning, they could operate and restore eco-systems and could contribute to successful closure if the policies and partnerships were in place. If mine closure provisions were sufficient, provisions could be managed in a way that supported developmental opportunities. In 2009, the Auditor-General had looked at all abandoned and orphaned mines. There had been 6 000 at the time, and the estimated cost was R30 billion.

The proposed amendment to Section 43.1, “notwithstanding issue of the closure certificate”, meant that the legal responsibility remained with the mine owner after closure, and this amendment was applauded by CSA. This was “The Polluter Pays” principle.  In Section 43.3, CSA recognised what happened globally - that big companies sought to sell on, rather than applying for a closure certificate, or they maintained such a low level of production that nothing happened. CSA wanted an amendment in legislation that gave the Ministry the right to assess and deem closure, and force the company to release the closure processes, which released the financial provision and forced the development opportunity to happen.

CSA raised the issue that retention of the financial provision should be made to address the actual environmental damage, and should be proportional to the investment. The retention period should be for the predicted life of the impacts, which could be assessed at the cessation of a mine. Technology was available and the DMR could develop a schedule of probabilities of long-term impacts.  For example, for a sand mine, the Ministry may not want to hold on to the financial provision for 20 years, but for a gold mine, it could be 80 years. There were probability schedules available. The South African government would be spending R1.2 billion to clear up acid mine drainage from mines which had stopped working 20 years ago.

Discussion
Mr M Sonto (ANC) asked what punitive measures the DMR should impose on dodgy mining houses that did bulk sampling and then left the site as it was, and said that they had found no minerals.

Ms Frazee replied that the DMR was indeed trying to do restoration. In terms of punitive measures for such companies, she suggested that the DMR should look at our both London and South Africa’s Stock Exchanges, as mining houses were allowed to make money not only from bulk mining but from the Stock Exchange, and these Stock Exchanges apparently did not look into due diligence. It would also be helpful if the DMR tested the ore vein so that it would be clear whether the company was prospecting, or if they were just going to mine and run. She further advocated financial provisioning for prospecting, in the case that it may be a “mine and run.”

Ms Ngele commented that DMR was involved in the rehabilitation of mines, but it could not be done all at once.

Ms Frazee said that she agreed, However, in her experience after reviewing some restoration protocols, it was clear that sometimes the DMR did not have the correct expertise for closure and restoration of mines, which had resulted in money being wasted. One sentence in the EMPR which had the financial provisions, made all the difference.

Mr Farayi Madziwa from Conservation South Africa, said that while it was acknowledged that the DMR was doing restoration, it should not have had the responsibility in the first place. The mining company which had caused those impacts had the responsibility to restore it. CSA was saying that taxpayers’ money should not be used for that, and that the 20 years in question regarding holding financial provisions, should be done on a case by case basis and reviewed annually, depending on the mining operations, the minerals under the soil and for how long the projected latent and residual impact was likely to surface and be seen.

Chamber of Mines
Mr Roger Baxter, Senior Executive: Strategy & Economics, Chamber of Mines, said that the positives in the MPRDA Amendment Bill were the environmental streamlining, although there were still issues relating to financial provisions, water use, residues and internal appeals that needed to be clarified. Amendments on associated minerals and partitioning of rights were also positive, but there were wording issues which needed to be addressed.
While mining was the key “flywheel” of the country’s economy, South African mining had missed out on the last commodity boom with a -1% annual decline in real mining GDP between 2001 and 2008, compared to the 5% growth rate in the top 20 mining economies’ mining sectors, and the industry had faced bouts of policy uncertainty.
The Chamber fully supported greater beneficiation. However, the mining sector could not carry both the “market risk” and potential “government pricing interference risk” in terms of the developmental pricing proposal. The Chamber believed this would significantly undermine funding for mining projects and transformation, and was likely to curtail investment in the mining sector to the detriment of the country.  The Chamber was also concerned that the discretion conferred on the Minister was not yet guided by regulation. In terms of Section 25 of the Constitution, there were concerns with the Section 26 Amendment regarding expropriation and deprivation of property, as well as expropriation of property by way of a compulsory diversion of income. The Chamber was also concerned about contravention of the rule of law requirement in Section 1(c) of the Constitution regarding exports being subject to conditions determined by the Minister, without guidelines as to what such conditions should be. Implementation and enforcement of the proposals in this section would constitute a breach of a number of South Africa’s international trade law obligations. Proposed solutions were: the Section 26 amendment should be changed to promote security of supply, but not include developmental pricing; the mining and manufacturing industry and government needed to work together to grow upstream and downstream beneficiation; the adoption of industrial policy measures such as Special Economic Zones; and the unblocking of infrastructure constraints.
Professor Michael Bale, Norton Rose Fulbright Director: Mining Law, Chamber of Mines, explained the reasons why the ministerial invitations for applications system in Section 9 of the Bill would not promote development or investment. The existing system provided for access to applications for anyone and contained optimality in grants; it gave rose to orderly adjudication, based on merit and certainty, limited subjectivity and avoided irregularities. It also allowed for the prohibition on grants when necessary in national interest, to promote sustainable development and avoid flooding of the market – oversupply - and provided for selective Ministerial invitations. All of these already empowered the Minister. The new system gave scope for subjectivity and irregularity and pressure on officials for granting of rights which may not be in the benefit of the nation; it already included unfettered discretion regarding terms and conditions; and it would freeze the system due to (costly) appeals and reviews by the unsuccessful applicants. The Chamber’s suggestions were that proposals should not proceed, or that the Bill should have both voluntary applications based on the first come-first served basis, and select Ministerial invitations based on comparative merit.
In the Bill, prospecting rights, retention permits and mining rights may be refused, based on the number of rights held by the applicant – the concentration of rights. This was contrary to mineral resource development -- certainty and stability. The number of rights was not relevant or rationally connected to the amount of mineralisation on land; the refusals did not promote the national development plan; and it offended against continuity of tenure – expropriation.  The Chamber’s proposals were to delete all references to concentration of rights, or at the very least provide exemptions for continuity of tenure for existing rights, from retention, to prospecting, to mining rights.
While the Bill proposed the transfer of parts of rights, the Chamber suggested that the procedure should involve the splitting of rights (Section 102) and then the transfer of the split part (Mining Titles Registration Act, 1967).  The Bill also proposed to prohibit extended areas greater than the existing area, but the Chamber believed that this did not achieve a friendly regulatory system or security of tenure, or mineral resource stability. Unlimited extended areas were practically necessary for consolidations, geological and mining engineering purposes, and partial transfers. Chamber’s suggestions were to delete the proposed Section 102(2). The Chamber also suggested that the proposal should not proceed for transfers or disposal of interests/controlling interests in holders of rights, Section 11(1), which required Ministerial consent, or that the consent to the transfer of a controlling interest in listed companies be required only if the transaction was an “affected transaction” in terms of the Companies Act (Section 117).  Empowerment was already regulated by the Charter, and compliance by the reporting requirement.
Mr Niks Lesufi: Senior Executive: Health and Environment, Chamber of Mines, said that the Chamber proposed an integrated licensing system for environmental matters, with the Minister of Mineral Resources being the competent authority to regulate environmental matters in the mining industry, in terms of NEMA. The Chamber also promoted synchronization of timeframes for processing an issuance of permits in terms of NEMA, MPRDA and other Specific Environmental Management Acts (SEMAs), such as National Water Act (NWA) water use licences; and amendments of NEMA, MPRDA and NWA to effect the above.
Regarding alignment and transitional arrangements, the Chamber recommended that the commencement dates of the MPRDA Amendment Bill, 2013 and the NEMLA Bill, 2013 be aligned by Clause 15 of the NEMLA Bill, 2013 being amended to provide that the NEMLA Bill, 2013 (once enacted) would come into operation on the date of the coming into operation of the MPRDA Amendment Bill, 2013 (once enacted) in terms of Section 80 thereof.
Regarding continued liability, notwithstanding the issue of a closure certificate, the Chamber recommendation was that Clause 30(a) be deleted in favour of retaining the existing wording of Section 43(1), whereby a closure certificate exonerated the holder from pre-closure responsibility, although not from post-closure responsibility.
The existing wording of Section 43(6) already empowered the Minister to retain any portion of the financial provision for latent and/or residual environmental impact, hence the amendments “Retention of financial provision for 20 years after issuing of closure certificate” were not necessary.
There was also already provision in Section 5(3)(d) of the MPRDA for water uses relating to prospecting, mining exploration or production to be subject to the NWA, hence the proposed amendments were not necessary.  Inserting a granting criterion for applications for prospecting rights, mining rights, and similar  rights, that the applicant has the ability to comply with the relevant provisions of the National Water Act, 1998, would suggest that the DMR had a mandate on the implementation of the NWA.
Regarding definitions of “residue stockpile” and “residue deposit” in Section 1 and Section 42a, the proposals in the Bill were to include historic residues and continuance of existing rights to historic residues for two years, and conversion to reclamation permits of short duration and non-transferable. The Chamber submitted that this was not promoting security of tenure, certainty, stable mineral tenure, or sustainability of investment.  They would constitute expropriation of private property, and historic residues on mining areas were part of operating mines. Reclamation permits were not suitable, as the duration was too short and non-transferable. Furthermore, historic residues were already subject to statutory obligations (environmental, health and safety).
The Chamber’s submissions concerned recognition of private property, and suggested a possible threefold solution:
1. historic residues on mining areas to be regarded as part of the residue stockpiles produced in terms of the mining right;
2. rights to historic residues not on mining areas continue for two years during which the owner has the right to convert to a mining right; and
3. rights to historic residues not on a mining area and in regard to which no conversion was lodged, cease to exist and such historic residues then to be regarded as current residue deposits free for application and for grant of new rights.
The chamber further submitted that residues should be governed under NEMA, and not a separate waste licence.

Regarding petroleum, the proposals in Section 1 and Sections 80(7) and 84(6) and (7) in the Bill, for state free carried interest in exploration and production rights and the state option to acquire additional interest in exploration and production rights, were a disincentive to petroleum investment. This was contrary to the promotion of rights by the Mining Rights Act, Section 14 (1967), to encourage investments, taking into account that South Africa was quite poorly endowed with oil resources. The proposals were also too vague with regard to the percentage to which the state was entitled;  and were against continuity of tenure from existing rights – expropriation.  The Chamber’s submissions were that the proposals should not proceed, or there should be no free carried interest, no further option, percentage interests (if there had to be) should to be stipulated in the Bill, and there should be exemptions for existing rights. The Chamber further suggested an exemption for coal bed methane. Though defined as petroleum, it was from a coal deposit and should be treated as a mineral.
Regarding the sanctions, the Chamber suggested: not to proceed with the proposal on notice of intended cancellation: Section 47(2)(c); not to proceed with the proposal on compulsory suspension orders: Section 93, or for fixed penalties to apply only to reconnaissance, technical co-operation, prospecting and exploration, and for factors to be stipulated (see Section 59(3) of the Competition Act); and not to proceed with the proposal on Administrative Fines: Section 99(1B).
Mr Anton van Achterbergh: Head: Legal Department, Chamber of Mines, concluded that mining had to get back on to a growth track to help the country achieve higher economic growth. The mining sector required a stable, predictable and competitive regulatory framework to enable the sector to achieve its growth and transformation objectives, as embodied in the NDP.  Amendments to the MPRDA were a necessary step to achieve this goal.  The Chamber was supportive of some of the proposed amendments, but requested the Committee to take into account areas where the Chamber had concerns.
Discussion
Ms Khunou asked how the Chamber would be satisfied that Ministerial invitation was based on a comparative merit basis.  She also asked if in comparative analysis, the refusals - based on concentration of rights - would take previously disadvantaged applicants and experience into account.
Professor Dale replied that comparative merit of applications in a tender system was a great challenge.  For this reason, the existing system seemed to be better than the tender system.
Mr Mohai said that the Chamber had a longstanding history in the development of the mining industry in SA, and understood the prevailing challenges of the sector very well. He asked for the Chamber’s view on what the administrative challenges were.
Professor Dale replied that the challenges were in the application of the existing requirements by the person adjudicating the applicant. An applicant could say that he had specific required abilities, could mine optimally, comply with health and safety, etc, but mediocrity resulted from poor application of the sections. Therefore it was not the sections of the Act that was the problem, but the administration of the Act.
Mr Mohai asked what the critical areas of beneficiation were that would need engagement with the DMR, and how the policies and state intervention would relate to and change the sector without beneficiation.
Mr Schmidt said that the Bill introduced about 36 new discretions for the Minister. He asked if the Bill would conform to the rule of law principle, if the criteria of the Ministerial discretion were declared in the Bill, and the detail was in the regulations. He wondered if it was possible to have that sort of balance.
Professor Dale replied that Ministerial discretion could be in the legislation, where that discretion complied with the rule of law and the separation of powers. The legislature would have to build in the criteria within which the Minister could exercise that discretion.  An un-circumscribed discretion, with no guidelines, offended against the rule of law and could be held to be unconstitutional. There were many open-ended things for which discretion was difficult, such as in beneficiation - percentages, prices, minerals, and terms and conditions.  However, fundamental discretions, such as the percentage of free carried interest on the petroleum side, would have to be prescribed in legislation. If they were not, Parliament was abdicating its powers to the executive, in which case a two-line Act could state that Parliament empowered the Minister do everything to promote mineral development, but this would be contrary to the rule of law and the separation of powers.
Mr Schmidt said that the initial submission from the Chamber of Mines appeared to be very similar to the current submission. He asked how many of the Chamber’s considerations had been taken on board since the Bill was in its original form.
Professor Dale agreed that there were not many differences between the draft Bill and the tabled Bill. Many of the comments that the Chamber had made had not been taken into account. The drafting team had looked at the comments, but somehow they had not found favour.
Mr Schmidt asked for the Chamber’s comments on the removal of “economical” from beneficiation.
Mr Schmidt asked if there was a comparable international jurisdiction which could assist with the wording of the conditions for the ministerial invitation for applications.
Professor Dale replied that he could speak for petroleum only. Licencing rounds were very common in the petroleum industry.
Mr Schmidt noted the Chamber was promoting the DMR as the functional department in terms of applying the NEMA law. He asked if there was a better way of handling NEMA, without giving all the power to the DEA.
Professor Dale replied that the Minister of Mineral Resources was the Minister responsible for issuing environmental authorisations under NEMA for mining-related issues, but the aggrieved party could then launch an appeal through the Minister of Mineral Resources to the Minister of Environmental Affairs.  The first question about this was whether it was constitutional to have an appeal from a judge of one rank to another of equal rank. Secondly, Section 24 of the Constitution demanded a balance of ecologically sustainable development and also promoted justifiable socio-economic development.  Therefore, the Ministers were both responsible and the Constitution did not want one to trump the other. The Chamber suggested that if there was to be an appeal beyond the Minister of Mineral Resources, then it had to go to the Deputy President.
Mr Lorimer asked for more information on security of supply. He understood the Bill wanted to give the government power to ensure that a certain amount of production was sold at a particular price locally. How did the alternative work?
Mr Baxter replied that security of supply could be achieved in many different ways. Chamber was not convinced that regulating security of supply would ensure security of supply. For the R100 billion capital required in the coal sector to enable primary energy security, trying to regulate that outcome would not necessarily ensure the correct outcome. A proper collaborative engagement process between Eskom, the mining companies and government to address the reasons why investment was being held back, were probably a more pragmatic way of achieving the same end.
Mr Lorimer asked how the Chamber modelled contributory carried interest.
Professor Dale replied that the Chamber had in its February submission attached a clause from one of the OP 26 prospecting sub-leases (which led to the old OP 26 mining leases). The clause that ‘carried interest was a contributory carried interest’ provided for the state not having to contribute to past cost (exploration to discovery cost), but if the state then exercised its right to participate, from that point onwards, it would have to contribute to all costs, including capex, opex and everything else.
The Chairperson asked if MIGDETT, as an advisory council, could be a more effective platform than ministerial powers, in terms of decision making.
Mr Baxter replied that MIGDETT was originally set up in 2008 to help the mining sector deal with the global financial crisis at the time and had a focus on transformation and competitiveness. It was not necessarily dealing with the very specific regulatory issues relating to discretion. MIGDETT and the other platforms were different in the nature of what they were doing. More recently a lot of other development work had taken place through the Deputy President’s mining Stakeholder Dialogue process, which meant that MIGDETT had taken a bit of a back seat in the discussions.

Industrial Development Corporation (IDC)
Ms Nozizwe Mthembu, Legal Division, IDC said that IDC was a state-owned development financial institution mandated to promote the economic prosperity of all citizens through encouraging economic development across all industries. The presentation focused on security of supply as IDC was a user of public funds and exercised prudence for the capital it lay out. Other key issues were around beneficiation; reversion of rights to the state and the Minister’s moratorium on further use of land; quotas and price setting.
Mr Nzame Qokweni, Norton Rose Fullbright said that much had been said about beneficiation. In section 1, the proposed definition of beneficiation was restricted to downstream beneficiation. From a funding perspective, IDC was of the view that the definition should be extended to include side stream (mining research and mining technical skills development together with the development of critical proprietary mining intellectual property associated therewith) and upstream (manufacturing of mining equipment and supply of mining services).
Mr Luvo Mnduzulwana, Legal Division, Mining & Beneficiation Business Unit, IDC said that in Section 2 of the Bill, IDC was of the view that an extended scope of beneficiation would ensure that mining and production rights holders holistically contributed to the overall development of the mining industry and accessory industry.
Section 5 of the Bill entirely amended section 9 of the MPRDA. The proposed section prevented prospective applicants from automatically being able to apply for reconnaissance permission, prospecting rights, exploration rights, mining rights, production rights and mining permits relating to any land that had been relinquished or abandoned, or right or permit that had been cancelled, relinquished, abandoned or had lapsed, unless the Minister of Mineral Resources had invited applications. IDC’s view was that the proposed amendment may have the unintended consequence of unduly restricting the general development of the mining industry; that it was likely to place an onerous administrative burden on DMR. The effective execution of the requirements contemplated under the proposed section 9(2) of the MPRDA required vigilant, informed and pro-active administration and management. The DMR will have to increase its administrative capacity to ensure that prospecting and development of the mining industry was not beset or hamstrung by administrative red tape.
The IDC was of the view that this section should be amended so that the rights were generally available for application, unless the Minister placed a moratorium on applications and specifically gazetted a particular mining right or permit or geological terrain or basin to be subjected to an invitation process. The IDC further proposed that in those instances the reasons for the restrictions of those mining rights or permits or geological terrain or basins should also be gazetted.
The IDC supported the proposed amendments to section 11 of the MPRDA. In order to facilitate funding or financing of mining projects by commercial banks, the IDC was often required to fill a gap and be an equity player in a project to improve the overall gearing of the project. Where the IDC was called upon to take equity in a project or an entity, and did so, it had to obtain Ministerial consent and every time it wished to exit the transaction its effective use of resources was affected. Such delays resulted in IDC being unable to maximise its returns to fund other projects. In order to limit its risk exposure, the obtaining of Ministerial consent should be foregone in such instances. The exemption that IDC was requesting could be limited to only include instances where the shares taken up by the IDC or any state-owned financial institution for purposes of financing or funding a mining project or entity are re-acquired by the entity or taken up by one of the other existing shareholders of the entity or funding advanced.
Mr Qokweni added that the effect of IDC taking up equity in projects or entities was that it ranked lower than other creditors (particularly debt providers) and had a higher risk exposure than other finance providers. IDC requested assistance as a development funder to rescue and exit quicker and efficient use of resources on a broader scale. IDC recognized that DMR had already provided one of the exceptions which had always hampered the provision of funds by IDC, which was the introduction of clause 11 (3)c) to the Act.
Section 21 of the Bill amended section 26 of the Act which dealt with developmental pricing and quotas. Provision of developmental funding was based on projected income at a particular price. IDC cautioned that this may force IDC as a funder to consider its funding model and the price of the cost of funding to cater for this risk as it may affect a company’s liquidity and ability to repay any of its debts and may further create a situation where there was market dominance, essentially eliminating competition or hindering growth in an industry where competition was essential for industrial and economic growth.
Discussion
The Chairperson asked if the IDC funded exploration projects.
Mr Kevin Hodges, Specialist: Mining & Beneficiation Business Unit, IDC replied that the IDC, according to its mandate, may participate in advanced exploration or pre-feasibility exploration but did not participate in the speculative or discovery phase of exploration.
The Chairperson asked to what extent the IDC supported the geological phase and where dumps were identified.
Mr Hodges replied that in the dump would be considered post discovery, as it would have minerals in it and IDC would evaluate the economic merit of the deposit and be aware of the risk and that some funding would not result in an economic deposit, but IDC would not put funding into speculative activity.
Mr Mohai said that IDC was one of the most important public finance institutions for investment in the industry. When talking about a capable development state, the IDC mandate would be to fulfil the developmental agenda of the state. He asked if the IDC based its support for the amendments on its continuous engagement with the DMR.
Mr Qokweni replied that IDC generally supported the amendments to the Act.
Mr Mohai said that the IDC’s submission stated that: “This proposal may inadvertently create a polarised industry, making it even harder for new market entrants and/ or junior miners to effectively compete in the mining sector”. It seemed to be a strong statement, a different tone in which the IDC made its presentation.
Mr Qokweni replied that the issue was raised because the IDC, as a funder with a developmental aspect, would typically fund the operations of new market entrants and junior miners. Companies with low cost mining operations were better able to handle quotas and developmental pricing than new market entrants.
Mr Schmidt said that it was clear that the IDC was in a preferential position compared to a normal bank in terms of applying to have a transfer of shares when assisting a company. There had to be consequences. He asked for clarification on why the regulation (the exception) would not apply to a normal bank like Standard Bank.
Mr Mnduzulwana replied that IDC specifically referred to state-owned institutions - not the IDC alone. Their agenda was set out by government and therefore should be treated differently. The current Bill would allow the IDC to be incumbent of a mining right without ministerial consent and for this, the IDC was grateful. Since the IDC funded equity where banks generally did not, the IDC was often in the space of bailing out companies which were on the verge of going down. Waiting on Ministerial consent may have unintended negative consequences.
Mr Schmidt asked for clarification on the percentage of the IDC interest in total state ownership in the South African mining industry, in terms of equity, shareholding, joint ventures, interest and so on. It was either 5% or 9%.
Mr Qokweni said that IDC would have to check the actual percent for the Portfolio Committee. It would be a moving target considering the role that the IDC played. By definition, because IDC provided equity funding, it would be listed as a shareholder in that company and indirectly a player in the market. However, this was not to say that it would be used as an investment but as funding that would be repaid to the IDC. When looking at the IDC’s percentage in state ownership, it should be looked at from the perspective of what the funding was intended to do.
The Chairperson asked how many IDC staff actually benefited from the processes. She was concerned that the IDC may target companies from which it could benefit.
Ms Mthembu replied that public funds were meant to be used prudently and every attempt was made to do that when the IDC made an investment. She believed the investments were for the IDC in the IDC’s own right, rather than for specific individuals.
The Chairperson said, in that case, who was the IDC?
Ms Mthembu replied it was currently the EDD: Economic Development Department.
South African Institute of International Affairs (SAIIA)
Dr Ola Bello, Head of Resource Governance Programme: SAIIA said that SAIIA was of the view that resource governance was not something that occurred to the private sector as a matter of course, but it very much defined the mandate that SAIIA had and this spoke very much to the work that lawmakers did. The legacy of South Africa was inescapable in any discussion on public policy and in that sense, the backdrop to amending the mining laws in South Africa was characterized by a great degree of polarisation, whether between government and companies, labour unions and companies and communities. There was a strong perception to restore relations and put government-company relations on an even keel in a way to serve the best interests of country. This would require enshrining stability of rules of the game in which the mining sector runs in the country and the present amendment process offered the opportunity to do that. The inevitable corollary would be that the corresponding rights, obligations and duties of companies and all the stakeholders would also be clarified in the process.
It was SAIIA’s contention that the proposal in the MPRDA Bill to repeal the FIFA system for processing exploration licenses possibly in favour of the submission of a licensing bid from competing stakeholders - should urgently be revisited. SAIIA proposed to look at the different options going forward, whether to have a FIFA or auction system and whether to proceed with either option. When the policy briefing was ready, SAIIA would like to engage with Parliament on this matter.
Whatever licensing procedure was to be followed it had to be explicitly written into law. There was need for greater clarity. Neither government nor industry could afford further oscillation on these matters. SAIIA was in the process of formulating a law which would be crucial for the country’s economic going forward.
South Africa should consider enshrining a retention licence in the Bill if not for anything else, to incentive mining exploration and better investment.
The state may want to refrain from being seen as both player and referee in the mining game, as this presented a conflict of interest. If government made the decision that having a state owned enterprise to pursue and protect some of the wider societal interests around mining and exploration and development of mineral resources, it was important to enshrine safeguards to ensure a level playing field for all the different stakeholders.
Discussion
The Chairperson asked what was of significance in terms of benefits of the Botswana licencing system to its people and the advantages thereto in terms of exclusive right of a mine.
Dr Bello replied that this was an example of overstating a case. SAIIA looked at Botswana was merely a parable. In Botswana, the existing 50/50 production share and arrangement between the government and the dominant diamond mining company in that country spoke to clarity in terms of what the different players in the mining game could expect. SAIIA was not suggesting that this was something South Africa should copy and paste. SAIIA was merely calling to attention to the fact that perhaps by looking at examples like Botswana, in terms of specific formula that would help to ensure the so-much talked about clarity, there may be a way forward. Of course, there were differences between the two countries. In terms of population, Botswana was a much smaller country and the mineral resources endowment base was not as diverse. Every country had a difference historical trajectory. SAIIA was mindful of the lessons from the history of apartheid and colonial exploitation on the continent.
The guiding principles of the so-called success Botswana was the relative clarity and stability of the rules. A 50/50 share in agreement might not be appropriate to South Africa, but whatever the government decided was appropriate, South Africa was well-placed to get clarity and state clearly upfront what the developmental objectives were and the way in which they expected stakeholders to come on boards and make their contribution. Investors would find this attractive would stay in South Africa
Mr Schmidt asked for clarification on what was meant by state custodianship without state control over mineral extraction.
Dr Bello replied that state custodianship, and not control, was a straightforward and clear distinction, especially in South Africa where we moved from the previous law that vested ownership of mineral resources exclusively in private hands. He believed that this was a sensible compromise. Historically, the mining sector had not delivered on its developmental potential promise in South Africa. In that sense, when it came to ensuring on behalf of the vast majority of the people of this country that the mineral resources in the country were for the shared benefit of all the different stakeholders, it was right that the government intervened in specific ways to ensure the development outcomes. That should be done in the context in which the rules were clearly stated before the game started.
Rightly or wrongly, there was the perception that the rules of the game could change in extremes and the international capitals would see that as extremely old style, presenting risk to potential investment coming into the country. State custodianship did not mean outright control or ownership.
Alex Benkenstein, Senior Researcher: Resource Governance Programme, SAIIA added that the question seemed to be: Should there or should there not be a state-owned company? Custodianship (and not control) would be to ensure that the state-owned company operated on a level playing field according to the same rules and that the rules were clear. The question from the Portfolio Committee to the DMR should be: How would the government intend to award mineral rights? The basic legislation governing mining had not made that clear.
The meeting was adjourned.